How to use the economic calendar for Forex trading?

One of the great advantages of FOREX is that it is open 24 hours a day , five days a week. The economic data tend to be one of the catalysts more important for short-term movements in any market, but this is particularly true in FOREX, which responds not only to the US economic data news but also the news from around the world. These news are displayed in the economic calendar.

With at least eight major currencies available for trading at most FOREX brokers and over 17 assets of them, there is always some economic data that traders can use to inform the positions they take. Generally, seven data are released daily for the eight major currencies or countries that are followed more closely. So, for those who choose to exchange news, there are many opportunities.



In this article we are going to talk about what news is released, the most relevant for forex traders and how traders can act based on this data that moves the market.

Which currencies should you focus on?

These are the eight main currencies:

  1. US Dollar ( USD )
  2. Euro ( EUR )
  3. British Pound ( GBP )
  4. Japanese yen ( JPY )
  5. Swiss franc ( CHF )
  6. Canadian dollar ( CAD )
  7. Australian Dollar ( AUD )
  8. New Zealand Dollar ( NZD )

Main currency pairs in the world:

  1. EUR / USD
  2. USD / JPY
  3. AUD / USD
  4. GBP / JPY
  5. EUR / CHF
  6. CHF / JPY




As you can see above, the currencies in question cover everyone . This means that you can choose the currencies and economic entries that you pay special attention to. But as a general rule, since the US dollar is on the “other side” of 90% of all currency orders , US economic launches tend to have the most pronounced impact on the market.

The exchange of news is more difficult than it seems. Not only is the reported consensus important, but also the whispering numbers (unofficial and unpublished forecasts) and revisions . In addition, some releases are more important than others; this can be measured in terms of both the significance of the country in releasing the data and the importance of the release in relation to the other data being released at the same time.

When are news releases issued?

Below we show the times (Lisbon time) when the data output is most important for each country. These are also the times when you should be paying extra attention to the markets if you plan to trade news.

Parents

Coin

Schedule
USA USD 13:30 to 15 hours
Japan JPY 11:50 to 4:30
Canada CAD 12 to 13:30
United Kingdom GBP 7 to 9:30
Italy EUR 8:45 am to 10:00 am
Germany EUR 7 to 11 am
France EUR 7:45 am to 9:00 am
Switzerland CHF 6:45 am to 10:30 am
New Zealand NZD 9:45 am to 2:00 am
Australia AUD 22:30 to 24:30

 

Times in which several countries release important economic data

The  most used Economic Calendar  is from Investing : https://en.investing.com/economic-calendar/ 

What are the main releases?

First you need to know what releases are really expected that week. Second, it is important that you know what data is important. In general these are the most important:

  1. Interest rate decision
  2. Retail sales
  3. Inflation (CPI: consumer price or IPP: producer price)
  4. Unemployment
  5. Industrial production
  6. Business sentiment surveys
  7. Consumer confidence survey
  8. Trade balance
  9. Industrial sector research

Depending on the current state of the economy, the relative importance of these launches may change. For example, unemployment may be more important this month than economic decisions or interest rates. Therefore, it is important to keep up to date on what the market is focused on.

How long does the effect last?

According to a study by Martin DD Evans and Richard K. Lyons published in the Journal of International Money and Finance (2004), the market may continue to react to the data days after launch. The study found that the effect on returns usually occurs on the first or second day, but the impact appears to last until the fourth day. The impact on the flow of orders, on the other hand, is still very pronounced on the third day and is observable on the fourth day.

How do I actually trade with this news?

The most common way to trade with this news is to look for a consolidation period ahead of a large number and to negotiate only the breakout. This can be done either in the short term within one day (intraday) or on a daily basis. Let's see the graph in the image below as an example. After a weak number in September, the market was in an October consolidation awaiting the final data, which would be released to the public in November.

In the 17 hours before the launch, EUR / USD was in a 30 pip consolidation. (The pip is the smallest measure of change in a currency pair in the foreign exchange market. Since most major currency pairs are priced to four decimal places, the smallest change is to the last decimal point).

This graph illustrates the indecision of the market that preceded the data on the creation of contractors, which were released in early November. You can see the increase in volatility that occurred when the data went below expectations.

We mentioned earlier that trading news is more difficult than you think. Because? The main reason is volatility. It may be following the right movement, but it ends up being interrupted or the market may simply not have the momentum to sustain the movement.

Let's see the chart below as an example. This graph shows the activity after the same data release as the example above, but in a different time frame to show how difficult the news release can be. On November 4, 2005, the market expected an increase of 120,000 jobs to the US economy, but only 56,000 jobs were added. This major disappointment led to a drop of approximately 60 pip in the dollar against the euro in the first 25 minutes after launch.

However, the dollar's positive momentum was so strong that gains were quickly reversed, and an hour later, the EUR / USD had broken its previous low and actually hit a 1.5-year low against the dollar. Opportunities abounded for breakout traders, but the dollar's bullish momentum was so strong that such a bad job number failed to put a sustainable effect on the currency's appreciation. One thing to keep in mind is that, behind a good number, a strong movement must also have a strong extension.

This intraday chart shows that while weaker-than-expected employment data pushed the EUR / USD quote upwards for a short period of time, the strong momentum of the US dollar was able to control the dollar. Keep in mind that when the EUR / USD quote falls, the US dollar is rising and vice versa.

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